Opinion: Economy debate: Should the U.S. sell off assets to close the budget gap?
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Everyone, it seems, has an opinion about President Obama’s ‘overly tame budget’ for 2012. For our editorial board, lawmakers must go to where the big money is: defense, entitlements and tax breaks. Niall Ferguson takes a different view. In the Feb. 28 issue of Newsweek, the author of ‘The Ascent of Money: A Financial History of the World,’ suggests the U.S. sell off assets, just as an indebted company would do. The U.S. government, he reports, ‘currently has $233 billion worth of non-defense ‘property, plant, and equipment,’ ‘ which could be sold as a means to close the budget gap. Here, he offers an example among several:
American highways sold to foreign investors? It may sound unthinkable, but it’s already happening. Indiana recently leased the operation of the state’s principal 157-mile highway to a consortium led by the same company Cintra and the Australian investment bank Macquaries. For the next 75 years, the consortium will collect the tolls from motorists. Indiana got $3.85 billion upfront.
Then he takes Gov. Jerry Brown to task:
California’s government has an estimated $103 billion in assets, including state highways with a book value of $59 billion. Are you telling me a sovereign wealth fund from, say, Singapore couldn’t do a better job of running those choked and often potholed roads? Yet one of Gov. Jerry Brown’s first acts since returning to office was to cancel a planned privatization of state-owned office buildings. From sea to shining sea, American politicians are running scared from the only credible solution to the country’s fiscal crisis.
Our editorial board took a very different view from Ferguson’s. From the editorial No-nonsense budgeting:
Former Gov. Arnold Schwarzenegger’s proposal to sell the buildings and then lease the office space back from private owners always struck us as self-destructive, a move we likened in October to a homeowner who sells his appliances, furniture and clothes to pay the mortgage; eventually, with all his assets gone, the bank will foreclose anyway. But that was when decision-makers were relying on an analysis by the Department of General Services that showed that selling the buildings would, over the course of 20 years, end up saving the state $2 million. A November report by the nonpartisan Legislative Analyst’s Office found that number highly inaccurate, concluding instead that over the 35-year estimated lifespan of the buildings, the sale-leaseback would cost the state $6 billion. The legislative analyst likened the move to taking out a loan at 10.2% interest.California’s budget situation is indeed dire, but solving the immediate problem by placing huge burdens on future taxpayers is a terrible idea. Brown promises to make up for the lost income from the building sales by borrowing money from special state accounts. That’s still going to impose future costs, but the interest payments will be far lower than the future expenses generated by the building sales.
Do you agree with Ferguson -- that the U.S. ought to sell off the assets it can part with? Or are your thoughts more in line with our editorial board’s take -- that selling assets is wrongheaded and self-destructive?
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--Alexandra Le Tellier
